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April 2, 2012

Cowen Unveils Wrap Trading Utility

By John D'Antona Jr.

Also in this article

  • Cowen Unveils Wrap Trading Utility

Buyside traders have a new tool that should make it easier to transact their wrap business. Cowen & Co. has introduced a product that gives greater leeway in finding liquidity, while fulfilling their best-execution obligations.

The upshot is that Cowen's utility not only makes the buyside's life easier, it also puts wrap investors on a more level playing field with institutional accounts. It does this by allowing asset managers to trade with whichever broker they choose, rather than sending the wrap portion of an order to be traded in a rotation after the institutional part.

Mark Viani

The new product, called Cowen 360, is used in the back end of the trade for clearing and settling. This relieves the buyside of the obligation to trade with the sponsoring broker that gathered the assets.

Estimates place the wrap industry at about $2 trillion in assets under management. Mark Viani, managing director for the electronic products group at Cowen, sees opportunity for his firm by providing this solution.

Cowen 360 allows asset managers to execute managed account orders with the broker of their choice, so retail investors can get best execution just like institutional investors.

"Our wrap business helps retail customers get the best execution they can and use the same tools used by institutional clients," Viani said. "We want to change the managed account industry."

A managed "wrap" account is an investment account held by an individual investor and looked after by a professional money manager. In contrast to mutual funds, which are professionally managed on behalf of many mutual-fund holders, managed accounts are specially tailored investment plans designed to meet a specific investor's needs.

Cowen 360 allows registered investment advisors (RIAs) to execute their wrap orders with the best-execution broker of their choice and pay a commission. The executing broker simply settles with Cowen via the Depository Trust Clearing Corp. Cowen automates the step-out process to the various wrap sponsors at a net price that includes the executed price, commission, and operational fee. Viani said Cowen guarantees the trade to the executing broker and sponsors and matches on T+1, avoiding any issues.

"We're the middleman here," Viani said. "We don't ask for the trade but take delivery from the executing broker as though we are a temporary custodian and in turn deliver to the asset gatherers."

Viani said Cowen settles the trade with the executing broker at the execution price and commission. The utility also bundles Cowen's operational fee and delivers the step-outs at a net price. Each one of the asset gatherers (sponsors) receives the same price, eliminating dispersion among similar managed accounts. That's because 360 eliminates the need for rotating the execution queue, which creates different execution prices for wrap clients.